The Competitions Commission has been in the headlines of late. It started with massive (and ongoing) investigations into price-fixing, tender collusion and other anti-competitive behaviours across many sectors of South Africa’s private industry. These ste
You will probably remember the ‘bread’ cartel investigation which was extensively reported on from 2007! The Commission fined Tiger Brands (R100 million) and Pioneer Foods (R855 million) for their respective roles in price-fixing and profiteering in the flour and bread-staples market. The two food giants plus Foodcorp and Premier were involved in a ‘bread’ cartel mainly through the price-fixing of white maize meal and wheat flour between 1999 and 2007. The cartel members created a uniform price list for wholesale, retail and general trade customers and also agreed on how and when to implement these increases.
A sudden shift in focus...
Fines are part and parcel of the Commission’s enforcement role. Their mandate is to ensure robust competition by blocking transactions which would lead to excessive dominant positions in a given industry. So – to offer an extreme example – they would prevent MTN from merging with Vodacom… They also exist to prevent major players in a particular sector from manipulating the price of goods and services. The ‘bread’ cartel example discussed in the opening paragraphs illustrates this function perfectly. Another important function is to prevent tender collusion – where large companies get together and agree their respective bids to influence the tender outcome. Although these types of investigations continue it seems the Commission has expanded its activities of late. Because they’re not only assessing proposed mergers and acquisitions based on their possible impact on market share and competition, but interfering at operational level too…
Two examples of non-competition meddling
The first widely publicised example of this meddling occurred in the financial services industry after Momentum and Metropolitan announced their intention to merge. Instead of simply approving or refusing the merger bid, the Commission attached a number of non-competition conditions. In terms of these conditions MMI Holdings (the merged entity) was barred from worker retrenchments for two years. And the company had to provide support, including core skills training, to unskilled and semi-skilled workers who may be impacted by future downsizing. These conditions are more akin to a union-negotiated retrenchment agreement. Management objected to these conditions, but elected not to challenge the Commission through the courts… In all likelihood the two-year moratorium would’ve been lifted before any relief could be obtained.
The second instance of Commission ‘meddling’ could have a huge impact on international inward investment to South Africa. When Wal-Mart announced it would ‘buy’ 51% of Massmart (JSE: MSM) – the guys who own Game, Dion Wired and Makro among others – they received a range of responses. Some people welcomed the US retailer’s decision to expand its operations into Africa. They believed the move would create jobs (decent jobs with fair wages) and ensure better price and variety for local consumers… But the unions said the move would result in job cuts, wage freezes and the destruction of companies in the local supply chain.
A simple transaction which should have been approved in a heartbeat is now mired in controversy. Things have progressed to a point where an anti-Wal-Mart Coalition, comprised of the South African Commercial, Catering and Allied Workers Union (Saccawu), the SA Clothing and Textile Workers’ Union (Sactwu), labour federation Cosatu and civil society organisations, is battling to thwart the deal. In a ‘normal’ economy a company with Wal-Mart’s global strength would have no trouble dealing with a union-led objection. But in South Africa the line between the unions and government (represented by the Competitions Commission) appear blurred. Yes, the Commission is doing its job by listening to all sides of the story – but given the MMI Holdings decision we sense the unions will enjoy a sympathetic ear.
What happens if Wal-mart walks away from the deal?
The conditions the unions are asking for are extremely restrictive. They say if the deal goes ahead there must be conditions to protect jobs AND to enforce local content. The US retail giant has already intimated it will walk away from the deal if the conditions are too restrictive. Even if the group decides to stay they could find local unions more difficult to deal with than those in the US. And they’ll have to work hard to find a ‘recipe’ that works in Africa. A fence-sitter may even wonder whether Wal-mart can trade profitably as a ‘platform’ for Cosatu and its affiliates’ collective ‘battle’ against Western imperialism. South Africa cannot advertise to international investors as a ‘free market’ if the Competitions Commission has powers to set purchasing and hiring policy!
Will the deal go ahead? It’s early days, but given the recent mutterings about South Africa contravening international trade agreements by attaching conditions to the deal we expect it will go ahead. Trouble is we lose either way. If Wal-mart doesn’t get the go-ahead other investors will be dissuaded from ‘buying’ their foothold in Africa. If it does – well the damage has already been done! After all, nobody wants to invest in a risky geography thousands of miles from home and still be told how to run their business? That’s not how true capitalists make their money!
Editor’s thoughts: The Wal-mart story is easily sucked into the modern day ‘have’ versus ‘have not’ debate. They’re loved or hated based upon the pro-money or pro-labour stance of their supporters and detractors. But we can’t help wondering whether the union objection to this jobs juggernaut is about power rather than worker rights. If the unions really want decent jobs and unemployment they should embrace the likes of Wal-mart whether they have influence there or not! Should they stay or should they go – would you welcome Wal-mart in South Africa? Add your comment below, or send it to gareth@fanews.co.za
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